“If my salary goes up, I will move into a higher tax bracket and take home less.” This is one of the most common money myths. It comes from not knowing how progressive income tax works. This guide explains tax slabs, marginal and effective rates with simple examples, and how to estimate your own tax with our Income Tax Calculator.
Slabs: each band taxed separately
In a progressive system, income is divided into bands. Each band is taxed at its own rate. Only the income inside a band is taxed at that band’s rate.
A simple illustration
Suppose an imaginary system:
| Annual income band | Rate |
|---|---|
| First 600,000 | 0% |
| 600,001 to 1,200,000 | 5% |
| 1,200,001 to 2,400,000 | 15% |
| Above 2,400,000 | 25% |
For income of Rs 2,000,000:
- First 600,000: Rs 0
- Next 600,000 at 5%: Rs 30,000
- Next 800,000 at 15%: Rs 120,000
- Total tax: Rs 150,000
This table is only an illustration; real slabs, such as Pakistan’s FBR salary slabs, are set in each budget. For current Pakistani salary tax, use the FBR Salary Tax Calculator 2026-27.
Marginal rate
Your marginal rate is the rate on your last rupee of income. In the example, it is 15%. If you earn one more rupee, 15 paisa goes to tax.
Effective rate
Your effective rate is total tax divided by total income:
150,000 ÷ 2,000,000 = 7.5%
It is always lower than the marginal rate in a progressive system.
Why a raise never reduces take-home pay
If your income rises from Rs 2,400,000 to Rs 2,450,000, only the extra Rs 50,000 is taxed at the higher 25% rate. You keep Rs 37,500 of the raise. Your take-home pay still goes up.
Countries without income tax
The UAE and Saudi Arabia do not tax salaries as personal income, though other charges and VAT apply. That is why comparing offers abroad needs care; see income tax in the UK, UAE, Saudi Arabia and Pakistan.
Plan with real numbers
Know your effective rate to budget accurately. Convert yearly figures to monthly with the Salary Calculator.
Frequently asked questions
What is a tax slab?
A band of income taxed at a specific rate.
What is the difference between marginal and effective tax rate?
Marginal is the rate on your last rupee; effective is total tax divided by total income.
Can a raise make me take home less money?
No. Only the extra income in a higher slab is taxed at the higher rate.